Honey progress report: Big change edition

Well, the last couple of months have been a pretty wild ride in The Honeycomb. We moved out of our old place and concluded our experience with Cash for Keys, we bought a house and moved, and I am experimenting with a new student loan payoff strategy. Let’s explore each of these big changes a bit further, shall we?

Big change 1: The culmination of “Cash for Keys”

After I posted about foreclosure from the tenant’s perspective, the law firm representing the bank served us with papers for an eviction hearing in superior court. The kicker? The hearing and eviction date were set 2 weeks before the move-out date we’d agreed upon in writing with the same law firm!

We contacted them and they agreed to reschedule the hearing for after our Cash for Keys deadline. However, I had to wonder what someone who wasn’t an attorney would have made of the paperwork we were given. Individuals faced with this situation should probably work with a tenant advocate or attorney familiar with the foreclosure laws in their area.

After we moved out, we arranged a final walk-through of our old place. The documents we were given said the property had to be “clean-swept and empty of all personal belongings.” We did vacuum the carpet and mop the tile, although I don’t think that was actually required.

At the final walk-through was a representative from the law firm/bank and a pair of locksmiths. They changed every keyed lock in the place to ensure that we wouldn’t be able to re-enter the property. Then they gave me a check for $2,000 and I was outta there! The money is reported as income to the IRS via a 1099-MISC.

The official communication we received from the law firm felt very intimidating. There can be a lot of drama with a foreclosure! However, the walk-through was very low-key. While I worried that they would reduce the payout if the place wasn’t clean enough or something, the checks were prepared in advance for the full amount. I guess they either give you the money or they don’t.

Big change 2: Buying a house

Pretty much as soon as we received notice from our landlords that the property was being foreclosed on in late December, we decided to buy instead of rent. Jake was starting his new job in January, so we knew both the area and budget we were looking for (unlike a month earlier when we chose to let a rental go). A few factors made us good candidates for a mortgage:

The length of my job history (almost six years at the same employer)

My credit score (820 — Jake’s was 720, good but not great), and

Jake’s high salary ($130K per year plus bonus)

We had to wait a bit because the pre-qualification required a certain number of pay stubs. Since Jake started his new job on January 1, we didn’t have those until February. We were able to start house-hunting in earnest in March and ended up with our second-choice property. Here are the details:

Purchase price of $225K — we put 5 percent down and financed the rest at 4.625 percent

Our total monthly payment (PITI) will be $1,386, and our first payment is due in July.

Assuming no increase in property values and no extra payments, we will be able to drop PMI in eight years. The property appraised at $12K over the sale price, which helped.

The house has 3 bedrooms/2 bathrooms and just over 1650 square feet.

We love it!

For me, the biggest factor in choosing a house was the location. I didn’t want to be more than 5 miles from work. The biggest factor for Jake was a two-car garage. We each got the thing most important to us, though we did have to compromise in some other areas. Previously, we were paying about a thousand dollars a month for just under a thousand square feet, so this is quite an upgrade.

We actually had saved enough to put ten percent down, but we didn’t want to spend our savings down to zero and then be faced with a major repair right away. The A/C unit is on the older side, for example, and we are just coming up on summertime where temps routinely surpass 110 degrees Farenheit. I’ll post our new budget once I have a better idea of our regular expenses.

New student loan strategy

A couple of weeks before closing on our new place, I took my student loans off Kwikpay/auto-debit. As I noted when I set my financial goals for 2014, my servicer was advancing the due date whenever I paid extra on my smaller balance. In addition, they were allocating my entire regular payment toward my large balance instead of splitting the payments between them.

As a result, I was paid ahead 8 months on my large balance and over a year ahead on my smaller balance. Although I had more than enough saved up for closing on our new home, I decided to stop Kwikpay (set to deduct on the 28th of April) in case of emergencies. I made my regular payment manually after we had closed on May 2. To me, the peace of mind was worth a 5-day delay.

Originally, I had planned to re-enable Kwikpay the week after we moved. But then I realized that if I made ALL my payments manually, I could direct both the extra payment and the appropriate portion of the regular monthly payment toward the small balance. This would enable me to pay off the smaller balance much faster, which was my original plan.

Sometimes your student loan servicer will give you an interest rate reduction (usually 0.25%) if you enable Kwikpay. However, my student loan consolidation combined with multiple migrations to different servicers seems to mean that I lost that perk at some point. As a result, I wasn’t giving anything up and had a lot to gain by making this move.

In other words, automatic payments weren’t worthwhile for me. In fact, I think having total control over my payments will inspire me to pay down my debt even faster! I don’t know why I didn’t think of this solution before.

Do you have any financial changes on the horizon, large or small? What’s the biggest financial adjustment you ever had to make and how did you handle it?

I’m glad to hear that your home purchase went relatively smooth. It seems every time I have a home transaction it takes twice as long as expected and there are major headaches involved, I guess a large part of that is probably attributed to me working seasonally and for different companies.

Are you planning to pay the house down quickly or keep the mortgage for the full term? While I am a fan of putting down 20% I think you made the right move by going with 5% instead of 10% to avoid draining your bank account fully. When we bought our last house we put down 20%, but it had us down to only a couple grand in cash, not a comfortable feeling!

It didn’t feel like it was going smoothly at the time! It felt like everything that could happen at the last possible second, did. I have never bought a house before so I have no idea if this is normal, but the mortgage broker and the title company both would be incommunicado for days, and then have specific paperwork that they said they needed IMMEDIATELY. Very frustrating! We needed a specific closing day so we could move out and meet our Cash for Keys deadline and didn’t know until 4 pm on the day of whether it had actually happened or not!

Jake still has some credit card debt and we both have some student loans that we may focus on first, but once we’ve hit those things hard I do think we want to pay down the mortgage quickly. December 1 was the last time we had a housing payment (last time we paid rent) and we don’t have our first mortgage payment until July. Not having to pay for housing makes a HUGE difference in your monthly bottom line! Obviously that’s not a huge surprise (it’s most people’s most expensive single line item) but having actually EXPERIENCED it really drives the point home of what your life can be if you don’t have that payment. It’s going to be really tough to start doing that again!

Congratulations on the new house! I agree with the previous poster: PMI is not the evil many make it out to be. We’ve been paying PMI for almost 8 years, and can ask to have it removed next month. We have paid a total of approximately $8500 over the course of the eight years in PMI. 20% of our sale price would have been $27,000. We bought in 2006 with excellent credit and no money down. And certainly not $27,000 in the bank!

But that $8,500 hasn’t been applied to the principle of your loan, right? It’s a penalty that you pay monthly. I understand that without it, you likely wouldn’t have been able to have 8 years of home ownership under your belt, but from my perspective that amount of PMI paid would irk me. And getting it taken off can be a laborious process from what I understand, since why would the bank want to release you from paying them more money?

Do banks do piggy back loans anymore? That’s what we did, so even though the secondary loan was at a higher interest rate, all that we paid (and pre-paid) was money off the purchase price of the house.

PMI is definitely annoying, but it was the right choice for us in this circumstance. We had to move in a certain deadline and only had a short time to really focus on saving up for the down payment.

Like I said, we COULD have put 10% down but knowing how expensive home ownership can be, we preferred to keep some liquid. While the previous owner did fix everything we asked them to based on the inspection, there are some things that we are noticing now that we live in the home that will need to be taken care of in the semi-near future.

We may focus on mortgage paydown after Jake finishes paying off his credit card debt until we are at 20% equity and can drop the PMI. Then we’ll probably switch back to aggressive student loan payoff until that’s done before focusing on the mortgage again.

Like others, I think you made the right choice to hold back 5%, since you weren’t anywhere close to the 20%. If you pre-pay the mortgage now, hopefully you will be golden in a few years, since you won’t be dependent on appreciation alone to take it off.

Would your bank have offered a lower rate if you put 10% down? We just bought a house a few months ago, and only had about 11% down. There were different rates for 5% vs. 10% vs. 20%. We’ll be rid of PMI in about 2 years. I can’t wait to be done with PMI!

We could have gotten a slightly lower rate by putting more down, yes. Our actual rate didn’t lock until 3 days before closing so it’s hard to say how that would have actually played out, though. This way we have about $10K liquid in case of emergencies, however. So you have to way the actual numbers against peace of mind. It’s more about mind than it is about math!

@Sanora “The folks who put so little down were the ones who crushed the housing market.”

This statement would be more accurate if you said “…put so little down and walked away…”.

Or better still “Put so little down on a house they KNEW they couldn’t afford and walked away….”

The housing market was crushed for a number of reasons, but small down payments were not the cause.

Many foreclosures and short sales involved people who chose to walk away. Understandable in the case of a job loss, but the people who defaulted simply because their house “wasn’t worth what it used to be” or because they could “get so much more house for less money”, should have been called to task for their irresponsible behavior, which most definitely had a negative impact on the housing market.

Funny, you never heard about the people who made small down payments and continued to make their payments even when their homes were underwater. They are unsung heroes, IMHO.

Congratulations on the new house Honey. I’ll admit I cringed a bit on the less than 20% down. I almost wish you hadn’t posted Jake’s income because I couldn’t help but question in my head why in the world you guys couldn’t come up with the 20% down in just a few months, or from the time you realized you were going to buy a house.

The cost of the house seems to be very reasonable for your income and housing is most folk’s larges exense, so that’s an awesome step and even though paying PMI would bother me it seems like a calculated move on your part so happy home owning!

We found out that the place we were living in was going into foreclosure on New Year’s Eve (IIRC). Prior to that we were focusing on debt payoff.

I think saving $25K or so in 4 months (we closed on May 2) is pretty awesome. While we *could* have put 10% down, we still would have had to pay PMI and it would have been literally every penny we had. Too risky for us!

Honey, congratulations on buying a home! I just wanted to say that your post impressed me, because it is such a contrast to your earlier post some time ago about wanting to buy a home. I don’t have it in front of me, but I remember the gist of the post came across as wanting to buy a house because that was what you wanted without a lot of thought as to the practical details or financial implications of it, and the readers largely raked you over the coals for it.

This time is different. You have practical reasons for buying (getting evicted from a rental is a huge motivator – that happened to us too because the landlady wanted to sell the building with no tenants in it), you have a CLEAR idea of where you want to live and how it fits into your lifestyle, and your financial ducks are in a row. Kudos to you and Jake.

And I’m envious; your PITI is a LOT less than ours for a bigger house! (But we live in Boston, not Arizona. 76 degrees today but cooler by the ocean. )

I agree with others about holding back on the down payment. When I first bought my condo it seemed like money was flying out the door, and it wasn’t due to repairs or emergencies, just household set up costs, such as getting a screen door, new waste baskets since I had more rooms, etc.

Also, I’m sure after your tenant-during-a-foreclosure experience owning your place must have been an even bigger priority!

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